Sunday, January 26, 2014

Weekly Market Summary

After opening Tuesday within $0.20 of its all-time high, SPY closed down 3% for the week, eviscerating the prior 10 weeks of gains (back to November 14).

So what's next? Here are our conclusions, with the details following below:

  1. Most importantly, as bad as the fall this week was, there's no lower low yet, in either the indices or sectors. Underestimating the strength of the uptrend was a mistake for most in 2013. The December lows (176.5 in SPY) are key to the uptrend. 
  2. The indices ended the week 'oversold'. Typically, a back test of at least the 50-dma follows after the first break below in more than a month. That seems likely. A second break below the 50-dma obviously signals more downside ahead. 
  3. A majority of the telltale signs of a durable bottom are not yet present. This suggests that any immediate bounce is sellable. 
  4. There is reason to suspect that a larger 7-10% correction is in store, to at least 165 to 171. That would match the corrections in April and September 2012 and May 2013. If that is the case, SPY will not see a new high for at least 3 months and probably more than 6 months.

Tuesday, January 21, 2014

Fund Managers' Current Asset Allocation - January

Every month, we review the latest BAML survey of global fund managers. Among the various ways of measuring investor sentiment, this is one of the better ones as the results reflect how managers are positioned in various asset classes. These managers oversee a combined $700b in assets.

Overall, fund managers remain very bullish on risk. In September, exposure to global equities was the second highest since the survey began in 2001; it is only marginally lower now and it has increased every month since October. What is particularly remarkable is how long managers have been highly overweight equities (virtually all of 2013). This is longer than any period during the 2003-07 bull market.

Friday, January 17, 2014

Weekly Market Summary

SPY finished the week almost exactly where it opened. That has been the pattern over the past four weeks: the average open/close range has been just 0.8.

The week finished with all four US indices above their respective 20-d and 50-d averages. At the sector level, 2/3s are above their 20-d and 50-d, a slight deterioration from last week. The trend is up, but it's flattening. Respect the trend.

Friday, January 10, 2014

Weekly Market Summary

When we closed down The Fat Pitch for the holidays, SPY was at 182.4. Today, three full weeks later, it's just over a dollar higher.  If you've been away, you didn't miss much.

All the US indices and most sectors are above both their short term (20-d) and longer term (50-d) averages. The same is true for ex-US indices with the exception of those in emerging markets. A break of the 13-ema will be our first clue that the trend up is at risk. A break of the late-November pivots (colored boxes) is a more critical watch out.

Saturday, January 4, 2014

Popular Memes That Are Partially or Completely BS

As the US markets head higher, contrary evidence is being explained away in one fashion or another. This is part of a larger issue: popular memes persist despite evidence that correlations don't (or do) exist.

Not all stories are neat; the current bull market is no exception. Evidence that support different conclusions are always present. Better to acknowledge those differences in order to better understand how solid the foundation for the current market really is.

Below are just a few memes that have recently been popular that are partially or completely BS.

The late-1990s are a useful benchmark.